EUROPEAN ECONOMICS.   Term Paper ID:18004 Click to get this paper

Essay Subject: 16th Cent. & early 17th Cent. Causes of price inflation & "great debasement," fiscal analyses, speculation, importation of Amer. gold & silver, labor, trade, money supply, rise of capitalism.... More...

12 Pages / 2700 Words 12 sources, 24 Citations, APA Format $48.00 Return to List of Papers

Paper Abstract: 16th Cent. & early 17th Cent. Causes of price inflation & "great debasement," fiscal analyses, speculation, importation of Amer. gold & silver, labor, trade, money supply, rise of capitalism. Paper Introduction: Introduction This research examines the price inflation, often referred to as the "price revolution" (Hamilton, 1929) and the "great debasement" (Gould, 1970), which occurred in Europe in the sixteenth and early-seventeenth centuries. The purpose of the examination is to consider the underlying causes of the inflation. The most widely attributed cause of the European price inflation in the sixteenth and early-seventeenth centuries in Europe is the massive export of American treasure (gold and silver from Central and South America) to Europe--primarily Spain (Hamilton, 1965). The phenomenon has, however, been attributed to many other causes by both modern and contemporary historians, and economists, and by contemporary politicians and writers Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. The phenomenon has,however, been attributed to many other causes by both modern andcontemporary historians, and economists, and by contemporary politiciansand writers (Challis, 1971; Helleiner, 1959; Malowist, 1972; Miskimin,1975; Phelps Brown & Hopkins, 1959; Spooner, 1972). Some of the moresignificant of the alternative explanations are considered in thediscussions which follow.Population General population levels in Europe increased dramatically in thesixteenth century (Hamilton, 1965). In a similar manner, speculators weresingled-out and condemned as contributing to the price inflation of theday. Gould, J.D. Smith held that it was not the actual level of wealth, but the rateat which wealth was increasing or decreasing which most affected laborrates. The market economy created anenvironment in which the demand for industrially produced goods could bothbe developed and satisfied. And, without iron,effective and reliable machines could not have been developed and produced. It simply does notaccord such imports the sole or central role. 195-196). . First,capital concentration occurred among the developing merchant class.Capital was required to finance industrialization. This observation is certainly valid, and it does not preclude arole for gold and silver imports in the inflation. (1975). Where AdamSmith believed that the factors of supply and demand were majordeterminants of commodity prices, the value of labor consumed in theirproduction provided a basis for the determination of value. Contemporaryanalysts detected two undesirable outcomes from the practice of selling oncredit. (1959). Free institutions, such as merchantorganizations, permitted individuals and groups of individuals to embark onindustrial projects on their own initiative, and on their own risk. Earl Hamilton (1965) and most other modern economists through the196 s concurred in Smith's assessment. Whenlow labor rates and high interest rates develop, however, wealth begins todecline, and the economy stagnates. Hamilton, E. From the conditions described above, Smith (1776) concluded that the"liberal reward of labor . First, to accommodateexporters, and, in some instances, regraters, market-cornerers, andspeculators, the practice of credit sales was initiated. The Conventional Explanation Adam Smith (1776) held that the sole cause of the change in the pricerelationship between agricultural commodities and precious metals in thesixteenth century was the importation to Europe of American gold andsilver. With respect to some goods,it was observed that groups of individuals would simultaneously buy up allthe available inventory of a good, and establish a manufacturing positionin the same good. The international economy and monetarymovements in France: 1493-1725. These futurespurchases were regarded as another source of inflation. The price revolution in sixteenth century England (pp. (1972). Movements of expansion in Europe in thesixteenth and seventeenth centuries. The quality of money theorydemonstrated that the mercantilist preoccupation with specie accumulationwould, through relative price changes between countries, lead tosignificant changes in international trade balances, as well as to domesticinflation. Introduction This research examines the price inflation, often referred to as the"price revolution" (Hamilton, 1929) and the "great debasement" (Gould,197 ), which occurred in Europe in the sixteenth and early-seventeenthcenturies. Many modern economists view thispopulation increase as a significant contributor to the price inflation ofthe sixteenth and early-seventeenth centuries (Gould, 1964), and they areable to cite Adam Smith as support for their contentions. Iron was requiredfor the production of many of the products of industry. 176). The demand for European exports to the Americancolonists were viewed in the same light. This factor was theestablishment of the market economy. Another factor soon occurred, however, whichcontributed further to the enlargement and concentration of the laborsupply in towns. Gould (1964) also contended that significant upward movement inprices had begun well before the beginning of the massive importation ofgold and silver from the Americas, and, thus, the inflation of the periodcould not be laid solely at the foot of the increase in precious metalsimports. . Economica, 26, 62-78. The most widely attributed cause of the European price inflation inthe sixteenth and early-seventeenth centuries in Europe is the massiveexport of American treasure (gold and silver from Central and SouthAmerica) to Europe--primarily Spain (Hamilton, 1965). In the western hemisphere, Britain established colonies in the WestIndies, and in North America. (1971). With respect to Britain's colonies, AdamSmith considered their activities in several contexts. (1929). Smith observed that prices in the North American colonies were lowerthan prices in Britain, although wage rates were just the opposite. The market economy was, thus, the incentivefor industrialization, while the other factors discussed were theinstruments which made industrialization possible. As townsgrew, two conditions favorable to industrialization also developed. Two other important changes in the way in which the economyfunctioned occurred in the sixteenth century. Adam Smith (1776) postulated that the relative value of laborprovided a basis for the determination of commodity values. New divisions of labor, and new methods of productionwere required, if the feudal lords were to be able to compete in the long-distance markets, and if they were going to be able to satisfy theirgrowing consumer tastes. Textile production was the first of the productionprocesses to be industrialized in Britain, and industrialization occurredin Britain before it occurred elsewhere. (1965). New York: Harper & Row. The Spanish also zeroed-in on the regrater--the individual who boughtproducts in bulk with the intent in mind of reselling them at a profit inthe local market area. Economica, 26, 45-61. In mostinstances, such dismissals have been justified on the basis of a moderndeclaration that the importation of American treasure to Europe was theonly significant causal factor involved in the inflation of the sixteenthand early-seventeenth centuries. (Original work published 1776) Spooner, F. Without the development of machines,industrialization could not have occurred. Debasement of the coinage, thus, was a significant contributorto the price inflation of the sixteenth and early-seventeenth centuries. American treasure and the price revolution inSpain: 15 1-165 . The wealth of nations. . This situation arose becausethe new colonies were typically understocked in both labor and money. As the pace ofindustrialization quickened, the demand for new and improved machines alsoquickened. Smith (1776) also concluded that high labor wages, high interestrates are things "which scarce ever go together, except in the peculiarcircumstances of new colonies" (pp. Cornering the market and price exploitation were also singled-out asa cause of inflation by contemporary analysts. The ability to transform coalinto energy usable in industrial operations was discovered and perfected.Of equal importance was the fact that coal in ample quantities, andeconomically accessible, was found in those areas where the otherconditions favorable to industrialization developed--the British Isles andnorthwest and north central Europe. A price system is a process of resource allocation in an economy.The economy, as perceived by Adam Smith, was, in general terms, a freemarket economy. The 'so-called' price revolution: Reflectionson 'the Italian situation.' In P. American treasure and the rise of capitalism.Economica, 27, 142-154. As a consequence of this importation, many members of theEuropean aristocracy indulged themselves to an even greater extent than wastheir custom in luxury and ostentation. John Gould (1964), however,disagreed. A favorite whipping-boy for the Spanish was the foreigner whopurchased Spanish goods for export to their own country. London: Oxford U P. Of even greaterimportance, however, was the fact that iron was required to produce themachines which were used in the industrial processes. Such actions wereviewed as a cause of goods shortages in Spain, which, in turn, translatedinto higher prices. They also made newindustries possible. Malowist, M. Thus, Britain's humid climate andits cotton production were instrumental in the initial industrializationoperations. Once having accomplished these two actions, prices wouldbe raised to exorbitant levels. Smith, A. Economy andsociety in early modern Europe (pp. (1972). The inefficiencies of this production system soonbecame apparent. There settlement inthe towns increased the supply of labor to such an extent that the costs oflabor were reduced sufficiently to add renewed emphasis to the pace ofindustrialization. It wasto this reason that he ascribed the different economic growth rates in theNorth American colonies (where both population and economic growth werehigh), and in Britain itself (where both population and economic growthwere much slower). For the Europeans of thesixteenth and early-seventeenth centuries, the price increases did amountto a revolution. In a free market economy, prices are determined in themarket, without government intervention--for the most part. Phelps Brown, E.H., & Hopkins, S. New York: Harper & Row. Population growth worked hand-in-hand with liberallabor wages, according to Smith, because liberal labor rates createdeconomic growth, which, in turn, created an increased demand for labor.Liberal labor rates also made it possible for couples to support morechildren.Increased Money Supply, and Rising Trade Generally The increase in the supply of money in sixteenth and early-seventeenth century Europe, together with a general increase in the levelof trade is also offered as an alternative explanation of the priceinflation for that time period (Gould, 197 ). The fifth of the nine factors was the presence of iron ore, and theperfection of the technology for the use of this ore. This third factor among the nine was the enclosure of themanors which, in effect, dispossessed many of the serfs from the land.These individuals had nowhere else but the towns to go. First, the cost of the interest on the credit sales was viewed asa significant factor in rising prices, and second, the extension of creditwas viewed as a vehicle which made possible the actions of the exporters,regraters, market cornerers, and speculators. The increase in the quantity of money initself was a cause of price inflation. Some economic historians have even suggested that the price increasesin Europe in the sixteenth and early-seventeenth centuries did not evenconstitute a real economic revolution,because they were relatively mild by modern standards (Gould, 1964), andbecause they were, at least in part, a part of a long-range trend (Cipolla,1972). Builders' wage rates,prices, and population: Some further evidence. Thecreation of long-distance markets caused the manorial system of productionto come under study. ." and "thenatural symptom of increasing national wealth." He further concluded thatthe "scanty maintenance of the labouring poor . Smithconsidered the proposition that the exchange value of labor determinedcommodity prices, and that these prices were both fundamental andimmutable. Second, as individuals moved from the manors to thetowns, the labor required for industrialization began to concentrate in thequantities necessary. Harmondsworth, England:Penguin. Many modern economists have dismissed the attributions ofcontemporary economists and writers with respect to the causes of priceinflation in sixteenth and early-seventeenth century Europe. In P.H.Ramsey. 91-116).London: Methuen. The great debasement. There does exist ample evidence that the massive importation of goldand silver from the Americas did affect price levels in Europe. Many of the alternative explanations also eitherincorporate or elaborate on some of the contemporary explanations of theinflation phenomenon as significant contributors to the rise in pricelevels in sixteenth and early-seventeenth Europe. Without thesemachines, industrialization could not have occurred. The price revolution revisited. Gould, J.D. . In P. Vellonwas silver coin which was debased through the addition of some less dearmetal. Burke (Ed.). The fourth of the nine factors contributing to the growth ofindustrialization was the development of an ample and an economic source ofenergy to power industry. They were particularly alarmed atthe actions of those regraters who engaged in an early-day version ofcommodities futures buying--individuals who entered into purchaseagreements with farmers for grains in the growing stage. Therewere many factors which combined to create the conditions required tostimulate the creation of industry in the sixteenth and early-seventeenthcenturies. Economy and society inearly modern Europe (pp. Thelower wage levels in Europe caused the price inflation there to beperceived as much more severe than similar increases would have beenperceived in North America. The defeat by the British of the Spanish Armada in 1588, to anextent, opened the way for British colonization in the Americas.Initially, however, British interest in colonization was greater withrespect to the Orient than it was with the Americas. It was for this reason, according to Smith, that the labor rates inthe North American colonies were so much higher than they were in Britain.Wealth was increasing rapidly in the North American colonies, where it wasincreasing slowly in Britain, although the actual level of wealth inBritain was much higher than it was in the North American colonies. (1959). (1972). David Hume's quantity ofmoney theory linked changes in a country's gold stock (or silver stock) to(1) prices, (2) price changes, and (3) international trade balances (and,in turn, domestic employment levels). . 43-46). Thus, regardlessof what other causal factors for the price inflation existed, the massiveimportation of American gold and silver will remain as an important causalfactor, if not the only, or even the most significant, factor. (1978). The population of Europe from the black deathto the eve of the vital revolution. Journal of European Economic History, 4, 71-1 . Cambridge: Harvard U P.----------------------- 15 Suchimports both contributed to the debasement of the currency (Gould, 197 ),and stimulated commodity and product demand--both domestically (Europe),and by the colonies for European goods (Hamilton, 1965). Additionally, however, thedebasement of the coinage through the issuance of vellon caused individualsto demand more coins than in the past of a given nominal value for the samevalue of goods, as a means of making up for the lower quantity of silver inthe coins. The humid climate in the British Isles was the seventh of the ninefactors. While it is true that contemporaryanalyses tended not to accord gold and silver importations as much causalprominence as merited with respect to price inflation, the out of handdismissal of contemporary explanations appears to be equally unjustified,and a good deal more cavalier. Although some contemporary Spanish economists,writers, and politicians observed that the importation of gold and silverfrom the Americas led to activities which resulted in price increases, theydid not generally regard such imports as the primary cause of priceinflation. Gould (1964) contended that the price increases in the sixteenth andearly-seventeenth centuries really were not severe in the context of modernprice movements. Thearistocracy was too small a proportion of the population, however, fortheir actions to constitute a major influence on general price levels. He held, however, that it could only apply to the circumstancesof an early and rude economy, where the appropriation of private propertyand the accumulation of capital had not yet occurred. Priorto the development of the freer society, individuals and groups ofindividuals would more often than not be prevented by absolutist rulersfrom taking such actions. (Original work published 1964) Hamilton, E. (1975). Alternative Explanations Most of the alternative explanations of the price inflation insixteenth and early-seventeenth century Europe recognize the validity ofthe claim that the importation of American gold and silver was asignificant causal factor, although they do not accord that phenomenon acentral causal role. Gould (1964) also noted that price movements for all goods andservices neither began at the same time, nor continued to move in unison.This phenomenon certainly indicates that additional causal factors were atwork. While his assessment is correct, the effect oncontemporary populations of the price movements of the sixteenth and early-seventeenth centuries were perceived in relation to contemporaryexperience, and, while later developments may contribute to anunderstanding of that which occurred earlier, they do not change the waysevents were perceived by contemporaries. The eighth of the nine factors was the development of freeinstitutions in society. In the sixteenth and early-seventeenthcenturies, this source of energy was coal. Contemporary writers attributedsome of the price inflation of the day to such self-indulgence. Miskimin, H. This humid climate permitted the growing of cotton in quantitiesof sufficient volume to support the development of the industrialization ofthe textile industry. Smith (1776) held that the most "decisive mark of prosperity of anycountry is the increase in the number of its inhabitants" (p. The circulating medium and the movement ofprices in mid-Tudor England. Through this process, a greater quantity of money could be issuedwith a given amount of silver. New York: Octagon. 173). Nine of these factors deserve special consideration. Additionally, themerchants required increased and more efficient production to support theirtrading activities. The purpose of the examination is to consider the underlyingcauses of the inflation. Helleiner, K. The activities on the manors involving the division of labor and theimplementation of production efficiencies, on the one hand, and theattractions of the towns, on the other hand, provided the initial impetusfor the concentration of the labor supply required to supportindustrialization. Cipolla, C.M. Contemporary Explanations Sixteenth century price inflation in Europe was detected first inSpain (Hamilton, 1965). Gould (1964), in particular, thought that rising profits madeavailable through the rise of capitalism contributed to the inflation insixteenth and early-seventeenth century Europe. The contemporary Spanish viewed this middle-manactivity as a prime cause of inflation. Conclusion It appears evident that no single factor was responsible for theinflation in Europe in the sixteenth and early-seventeenth centuries.There existed multiple causal factors, and the real cause was the combinedand interrelated effects of these various factors. Thus, while there exists little dispute as to what prices did insixteenth and early-seventeenth century Europe, considerable dissensionexists as to both the causes and the relative severity of the inflation.These disagreements provide the justification for this current examination. Journal of European Economic History, 4, 1 1-111. The second important change was the issuance of vellon money. Heattributed this apparent anomaly to the fact that higher wage ratesincreased demand, which in turn increased supply, which, in turn, led tolower unit costs.Rise of Capitalism The rise of capitalism, and the shift to a market economy are alsooffered as alternative explanations for the price inflation in sixteenthand early-seventeenth century Europe (Hamilton, 1965; Gould, 1964). The sixth of the nine factors was the development of the machine.The machine made production efficiencies possible. The first of these factors was the expansion of markets. The last of the nine factors was perhaps the most significant of allin the context of the development of industry. These individual actions were instrumental inthe development of the industrial character of the economy in the sixteenthand early-seventeenth centuries. The implementation of such changes on the manors,freed more people for the towns. is the natural symptomthat things are at a standstill, and their starving condition that they aregoing fast backwards" (p. Burke (Ed.). The principal beneficiaries of the importation of American gold andsilver to sixteenth and early-seventeenth century Europe were thearistocracy. 1 4-112). (197 ). References Challis, C.E. The growth of towns was the second of the nine factors. Population growth and the price revolution inEngland. is the necessary effect . Further, the developmentof the market economy itself led to many price increases, which wereconsidered unacceptable before European wages also began to rise. If this paper is not what you are looking for, you can search again: Search for: or Click here to request an essay written just for you.

Many of our Papers can be Downloaded From This Site!

PLEASE READ THIS, IT IS IMPORTANT!

Office hours are Monday through Friday, from 9 am to 5 pm (PST). You may place orders for custom research over the phone during office hours. E-mail requests can be made to our graduate and undergraduate department any time, and will be reviewed during office hours. You may also contact customer service any time through e-mail, and we will review your message during business hours. A great many papers can be downloaded right from this site, but not all of them. If you would like to know if a particular paper is downloadable, just look in the description for: "Available for Internet Download: Y" or "Available for Internet Download: N" If you wish to purchase a paper which is NOT available for immediate download, you will need to make other shipping arrangements. Also, please be aware that these orders are processed Monday through Friday from 9 am to 5 pm (PST). If you place your order after 4:45pm on Friday, it will not be processed until the following Monday morning. We charge $8 per page for all of our pre-written reports, plus shipping (and tax for California residents). However, the highest cost of any ONE report is $136, or 17 pages. Please, take a moment. Make sure you have chosen the report you want or need BEFORE you complete your order. If you are not sure, allow us to help you. We do not offer refunds or exchanges, so it is important for you to let us answer your questions during office hours. Reports which are e-mailed or downloaded are in Microsoft Word format. We are making more reports available for e-mail delivery faster than we can update our listings. Please call to check on the status of particular reports. There are many other shipping options which are listed on the Checkout page.